The Management of Kabanuck Corporation Is Considering Dropping Product V41B

question 133

Multiple Choice

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $184,000 of the fixed manufacturing expenses and $200,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.
-What would be the effect on the company's overall net operating income if product V41B were dropped?

• A)Overall net operating income would increase by $71,000.
• B)Overall net operating income would increase by $132,000.
• C)Overall net operating income would decrease by $132,000.
• D)Overall net operating income would decrease by $71,000.

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Definitions:

Binding Contract

A legal agreement between parties that is enforceable by law, where each party has specific obligations.

Agreement

A mutual understanding between two or more parties about their respective rights and duties regarding past or future performances.

Offer

An offer is a proposal presented by one party to another with the intention of entering into a binding agreement, subject to acceptance by the receiving party.

Acceptance

In contract law, the expression of assent to the terms of an offer in such a manner that binds both the offeror and the offeree to the terms of the contract.